Fossil Fuel Subsidies in Canada
Fighting climate change through measures like putting a price on carbon requires focus. Unfortunately, governments around the world – including in Canada – subsidize the carbon emitting fossil fuel industry while fighting climate change at the same time. Producing and using fossil fuels are responsible for a majority of our emissions in Canada. Government fossil fuel subsidy amounts depend on how fossil fuel subsidies are defined. According to a recent estimate, federal and provincial governments in Canada provide at least CAD $4.8 billion in subsidies to the fossil fuel sector. Another study says this figure is closer to CAD $14 billion with Canada providing about 14.5 times more financial support to the fossil fuel industry than to the renewable energy sector. The average for G20 countries is 2.5 times more support for the fossil fuel sector. A different study states that Canada has the highest oil and gas subsidy per unit of GDP in the G7. Canada has also been found to be the second worst in the G7 when it comes to government reporting of the fossil fuel subsidies it provided. Fighting climate change, like the COVID-19 pandemic, needs to be seen as an emergency and we cannot afford to be taking one step forward and another step back at the same time. Fossil fuel subsidy reform is urgently needed in Canada to make renewable energy a more viable alternative.
Fossil fuel subsidies should not be seen as just a domestic issue. Burning of fossil fuels extracted within Canada that are exported (and a large amount is) are not part of Canada’s climate emissions. This is because international agreements require that only emissions produced within a country’s territory count towards the country’s total emissions. This means that emissions from Canada’s oil and gas exports do not count towards Canada’s emissions even though we profit from these exports. According to one estimate burning all of Canada’s proven oil reserves would result in emissions reaching almost one-third of the global carbon emissions budget to keep warming below dangerous levels. We thus need to recognize the use of our fossil fuels within the global carbon budget and not just our domestic emissions numbers. This involves eliminating fossil fuel subsidies given to those who extract these resources for export or domestic purposes.
How Fossil Fuel Subsidies are Calculated
Different methods exist to calculate fossil fuel subsidies resulting in a wide variation in final subsidy values. According to an article on CarbonBrief (a UK-based website covering the latest developments in climate science, climate policy, and energy policy), fossil fuel subsidies can be broken into 3 categories: consumer, producer, and post-tax externality-based. Consumer subsidies reduce the consumer price of energy products through measures such as government controls on pricing. Producer subsidies, on the other hand, directly go to supporting producers who extract fossil fuel resources and include methods such as tax breaks for capital investments. Post-tax externality subsidies put a monetary value on externalities such as climate change emissions and deaths due to air pollution and then converts this value into a subsidy.
The CarbonBrief article summarizes 4 international reports on global fossil fuel subsidies with each report using a different calculation approach. The global subsidy figures ranged from several hundred billion USD for producer and consumer subsidies to over 5.3 trillion USD associated with the post-tax approach. It is this higher subsidy value, reported by a 2019 IMF report, which is a more appropriate estimate of subsidies as the financial implications of continuing to pollute our atmosphere is very real and dangerous and not part of the consumer and producer calculations. According to the IMF report eliminating these subsidies through proper pricing around the world would result in a decline in global CO2 emissions by 28%.
Canada’s Position and Next Steps
Existing fossil fuel subsidies in Canada include producer tax breaks, funding for infrastructure projects as well as research and development grants. Canada committed to doing away with “inefficient” fossil fuel subsidies in 2009 but the subsidies remain over a decade later and there is no widely accepted definition in Canada of what an inefficient fossil fuel subsidy actually is. Canada has committed to eliminate inefficient fossil subsidies by 2023.
At the recent Glasgow climate change summit, Canada’s Environment Minister Steven Guilbeault stated that “Canada is in favour of having a text that states that we need to eliminate fossil fuel subsidies” and that a “timeline should be put in there” for eliminating these subsidies. Some next steps for Canada are described below.
In 2019 the Office of the Auditor General of Canada determined that the assessments of inefficient fossil fuel subsidies were not complete. The Auditor General found that the federal government “assessments did not consider the economic, social, or environmental sustainability of subsidizing the fossil fuel sector”. An important step in reducing fossil fuel subsidies is having subsidy assessments that account for long term sustainability in addition to determining where and how money is being spent. These subsidy assessments need to account for all subsidies (and not just those deemed inefficient) from all levels of government so that we have a full picture of this problem. We also need to move away from subsidizing the fossil fuel industry at all levels of government and shift this support towards the renewable energy sector. Government programs should exist to make sure that the poorest households and fossil fuel industry workers are helped to absorb the pain of fossil fuel subsidy cuts.
Canadians need to support politicians who have a plan to eliminate fossil fuel subsidies and are willing to be transparent about progress made. We must push towards the goal of keeping warming below dangerous levels and not undercut ourselves by supporting the significant growth of global climate emissions.
